The #1 Financing Mistake Triple Net Lease Investors Make

The #1 Financing Mistake Triple Net Lease Investors Make

Buying a triple net lease property will be one of the most important financial decisions that you will ever make as an investor, so it is very important that you avoid the #1 financing mistake triple net lease investors make. When you buy a NNN lease property you want to be at peace when you buy the property, you want to be at peace one year from the day you purchase the property, and you want to be at peace 10 years from the date you purchase the property. So, it is very important that you choose wisely and avoid this very common financing mistake. 

Buying or pretending to buy a triple net lease property with a high leverage financing structure

As I have heard many investors say, I just want to put 20% down and I’m going to get an 80% loan. Well, that’s a huge critical mistake in the context of a passive income triple net property investment in which cap rates trend lower. A high leverage financing structure would be a transaction in which the proposed loan to value would be above 50%. And you may immediately think, but why I cannot put just 20% down and 80% loan? Well, I’m going to explain to you why. 

Passive income investment

First and foremost, a triple net lease property is a passive income investment in which the tenant takes care of pretty much everything and your rental income is net. As a result of that fact, the cap rates of triple net lease properties are going to be lower than a traditional commercial real estate investment property. Therefore, in most circumstances, the cap rate will simply not sustain a high leverage financing structure, especially in the current interest rate environment in which commercial mortgages are still in the 6% and even 7% interest rate and above. In other words, it will make no sense to buy a triple net lease property with an 80% loan to value mortgage in which the mortgage interest rates can be 6.50% or even 7%. In a high leverage structure like that, the cash flow numbers are not going to add up, the majority of the rental income will go towards paying the mortgage, and the hidden risk really lies behind. 

The risk of lease non renewal with a high financing structure

If by any chance the tenant might decide to leave early or not to renew the lease, the property will rapidly decrease in value as a result of the loss of income. And that will trigger the bank to jump on your neck right away, asking for a capital contribution to restore the original loan to value. And ouch that one is really costly. And no one out there is talking about that risk. 

Do not leverage more than 50% LTV

If you are considering buying a triple net property with financing, you should not leverage more than 50%. And even leveraging only 50%, you may still be in a position in which most of your rental income will go towards paying the mortgage, leaving you with not enough passive income cash flow. You should carefully review your numbers and make sure that the cash on cash return will meet your expectations. 

Hire Casablanca as your Buyer’s Broker

Hiring an experienced and knowledgeable buyers broker that can assist you navigating the complexities of the market would definitely help you to avoid those critical mistakes. We specialize in representing NNN lease buyers and 1031 exchange investors. We have the knowledge and expertise to guide you along the way from market research, identifying potential properties, submitting offers and negotiating them, due diligence up to the closing table. 

We have helped many triple net lease buyers and 1031 exchange investors in finding and negotiating the best triple net property according to their investment goals and risk tolerance. Moreover, we represent our buyers for free since we get paid from the seller, and we also offer our buyers a closing costs credit up to a maximum of $10,000. This incentive will offset and in some instances will cover completely the major buyer’s closing cost expenses such as title fees, attorneys fees, recording fees among others. We are the brokers that give you more in exchange of your trust. 

If you have any questions or might need guidance with your upcoming triplet lease property acquisition, feel free to contact me directly and I will be in contact with you. 

Well, you got all the way into the end of this video. So, thank you very much for watching the video entirely. And if you found this video helpful, please give it a like and consider subscribing to the channel for more videos about triple net lease properties. 

If you want to know more about the best triple net properties to buy for your 1031 exchange or for your triple net acquisition, you can watch this video here that will tell you how to do it. So, thank you so much again for watching this video and I’m looking forward to being your broker for your next triple net lease property acquisition. Have a great day.

Why Choosing to Work with Us as Your Buyer’s Broker?

• Free Buyer Representation, so you get our expert advice at no additional cost to you.
• Up to $10,000 credit for Buyer’s closing costs.
• We specialize in representing NNN Buyers and 1031 Exchange Investors. We represent your interests as a Buyer exclusively, not the Seller.
• We assist you with market research, property evaluation and selection, offer submissions and negotiations, due diligence and closing.
• Extensive access to property listings through our network of broker colleagues, property owners and developers.
• Our main goal is to find the best property for you at the best price.

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